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PaperclipPerfector  10d ago (text post)   2619 thread views

Small-Scale Question Sunday for December 8, 2024

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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I thought a bit about this (more in the sense of "what's the leanest insurance company you could build" and "could you create an insurance marketplace with the least amount of intermediation"). I'd say you came to a similar conclusion that this:

And I've pretty much handwaved away the hard part which would be deciding which claims are legitimate to prevent bad-faith exploitation.

is the biggest issue. My thought was that the best product you could try this with is regular term life insurance, because there is a mostly pretty clean way of determining the validity of claims (a death certificate) and because people's desire not to die goes a long way to prevent fraud. You still have the problem with underwriting and adverse selection.

On the other hand, another problem is the matter of counterparty solvency, as an insurer you rely on the law of large numbers to smooth out premiums and claims, if someone in this decentralized network faces claims way in excess of the premiums they have collected, do policyholders get paid less in proportion of how much of their risk did this specific node assumed? You could have everyone put up capital for some sort of compensation pool, but the more things you stack over, the more you end up looking like just regular insurance.

The goal would be to remove the profit motive from insurance companies taking a cut as middlemen

Mutual insurance already exists! Some of the biggest insurance companies of today started as mutuals, I think Liberty still is one.

Mutual insurance already exists! Some of the biggest insurance companies of today started as mutuals, I think Liberty still is one.

I am immediately suspicious. Because if so why do they have so many ads? If they're not profit-driven, that seems negative sum.

The incentives facing executives at for-profits and executives at commercially managed non-profits (including large mutuals, and also fee-charging charities like university hospital systems) are more similar than they probably should be given the difference in mission.

Wouldn’t having a large userbase be useful for smoothing out the statistics? As Norman mentions above.

In the United States, Liberty Mutual remains a mutual company in which policyholders holding contracts for insurance are considered shareholders in the company. However, Liberty Mutual Group's brand usually operates as a separate entity outside the United States, where a subsidiary is often created in countries where legally recognized mutual-company benefits cannot be enjoyed.

So it’s also possible brand awareness in America is intended to fuel operations outside of the mutual umbrella.

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